How the Economy Was Lost: The War of the Worlds (Counterpunch) (18 page)

Chapter 44: Are You Ready for the Next Crisis?

E
vidence that the U.S. is a failed state is piling up faster
than I can record it.

One conclusive hallmark of a failed state is that the crooks are inside the government, using government to protect and to advance their private interests.

Another conclusive hallmark is rising income inequality as the insiders manipulate economic policy for their enrichment at the expense of everyone else.

Income inequality in the U.S. is now the most extreme of all countries. The 2008 OECD report, “Income Distribution and Poverty in OECD Countries,” concludes that the U.S. is the country with the highest inequality and poverty rate across the OECD and that since 2000 nowhere has there been such a stark rise in income inequality as in the U.S. The OECD finds that in the U.S. the distribution of wealth is even more unequal than the distribution of income.

On October 21, 2009,
Business Week
highlighted a new report from the United Nations Development Program. The report concluded that the U.S. ranked third among states with the worst income inequality. As number one and number two, Hong Kong and Singapore are both essentially city states, not countries. The U.S. actually has the shame of being the country with the most inequality in the distribution of income.

The stark increase in U.S. income inequality in the 21st century coincides with the offshoring of U.S. jobs, which enriched executives with “performance bonuses” while impoverishing the middle class, and with the rapid rise of unregulated OTC derivatives, which enriched Wall Street and the financial sector at the expense of everyone else.

Millions of Americans have lost their homes and half of their retirement savings while being loaded up with government debt to bail out the banksters who created the derivative crisis.

Frontline
’s October 21, 2009, broadcast, “The Warning,” documents how Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert Rubin, Deputy Treasury Secretary Larry Summers, and Securities and Exchange Commission Chairman Arthur Levitt blocked Brooksley Born, head of the Commodity Futures Trading Commission, from performing her statutory duties and regulating OTC derivatives.

After the worst crisis in U.S. financial history struck, just as Brooksley Born said it would, a disgraced Alan Greenspan was summoned out of retirement to explain to Congress his unequivocal assurances that no regulation of derivatives was necessary. Greenspan had even told Congress that regulation of derivatives would be harmful. A pathetic Greenspan had to admit that the free market ideology on which he had relied turned out to have a flaw.

Greenspan may have bet our country on his free market ideology, but does anyone believe that Rubin and Summers were doing anything other than protecting the enormous fraud-based profits that derivatives were bringing Wall Street? As Brooksley Born stressed, OTC derivatives are a “dark market.” There is no transparency. Regulators have no information on them and neither do purchasers.

Even after Long Term Capital Management blew up in 1998 and had to be bailed out, Greenspan, Rubin, and Summers stuck to their guns. Greenspan, Rubin and Summers, and a roped-in gullible Arthur Levitt who now regrets that he was the banksters’ dupe, succeeded in manipulating a totally ignorant Congress into blocking the CFTC from doing its mandated job. Brooksley Born, prevented by the public’s elected representatives from protecting the public, resigned. Wall Street money simply shoved facts and honest regulators aside, guaranteeing government inaction and the financial crisis that hit in 2008 and continues to plague our economy today.

The financial insiders running the Treasury, White House, and Federal Reserve shifted to taxpayers the cost of the catastrophe that they had created. When the crisis hit, Henry Paulson, appointed by President Bush as Rubin’s replacement as the Goldman Sachs representative running the U.S. Treasury, hyped fear to obtain from “our” representatives in Congress, with no questions, asked hundreds of billions of taxpayers’ dollars (TARP money) to bail out Goldman Sachs and the other malefactors of unregulated derivatives.

When Goldman Sachs recently announced that it was paying massive six and seven figure bonuses to every employee, public outrage erupted. In defense of banksters, saved with the public’s money, paying themselves bonuses in excess of most people’s life-time earnings, Lord Griffiths, Vice Chairman of Goldman Sachs International, said that the public must learn to “tolerate the inequality as a way to achieve greater prosperity for all.”

In other words, “Let them eat cake.”

According to the UN report cited above, Great Britain has the seventh most unequal income distribution in the world. After the Goldman Sachs bonuses, the British will move up in distinction, perhaps rivaling Israel for the fourth spot in the hierarchy.

Despite the total insanity of unregulated derivatives, the high level of public anger, and Greenspan’s confession to Congress, still nothing has been done to regulate derivatives. One of Rubin’s Assistant Treasury Secretaries, Gary Gensler, has replaced Brooksley Born as head of the CFTC. Larry Summers is the head of President Obama’s National Economic Council. Former Federal Reserve official Timothy Geithner, a Paulson protege, runs the Obama Treasury. A Goldman Sachs vice president, Adam Storch, has been appointed the chief operating officer of the Securities and Exchange Commission. The Banksters are still in charge.

Is there another country in which, in full public view, so few so blatantly use government for the enrichment of private interests, with a coterie of “free market” economists available to justify plunder on the grounds that “the market knows best”? A narco-state is bad enough. The U.S. surpasses this horror with its financo-state.

As Brooksley Born says, if nothing is done “it’ll happen again.”

But nothing can be done. The crooks have the government.

Note: The OECD report shows that despite the Reagan tax rate reduction, the rate of increase in U.S. income inequality declined during the Reagan years. During the mid-1990s the Gini coefficient (the measure of income inequality) actually fell. Beginning in 2000 with the New Economy (essentially financial fraud and offshoring of U.S. jobs), the Gini coefficient shot up sharply.

October 26, 2009

Chapter 45: My “Epiphany”

A
number of readers have asked me when did I undergo
my epiphany, abandon right-wing Reaganism and become an apostle of truth and justice.

I appreciate the friendly sentiment, but there is a great deal of misconception in the question.

When I saw that the neoconservative response to 9/11 was to turn a war against stateless terrorism into military attacks on Muslim states, I realized that the Bush administration was committing a strategic blunder with open-ended disastrous consequences for the U.S. that, in the end, would destroy Bush, the Republican Party, and the conservative movement.

My warning was not prompted by an effort to save Bush’s bacon. I have never been any party’s political or ideological servant. I used my positions in the congressional staff and the Reagan administration to change the economic policy of the United States. In my efforts, I found more allies among influential Democrats, such as Senate Finance Committee Chairman Russell Long, Joint Economic Committee Chairman Lloyd Bentsen, and my Georgia Tech fraternity brother Sam Nunn, than I did among traditional Republicans who were only concerned about the budget deficit.

My goals were to reverse the Keynesian policy mix that caused worsening “Phillips curve” trade-offs between employment and inflation and to cure the stagflation that destroyed Jimmy Carter’s presidency. No one has seen a “Phillips curve” trade-off or experienced stagflation since the supply-side policy was implemented.

The supply-side policy used reductions in the marginal rate of taxation on additional income to create incentives to expand production so that consumer demand would result in increased real output instead of higher prices. No doubt, the rich benefited, but ordinary people were no longer faced simultaneously with rising inflation and lost jobs. Employment expanded for the remainder of the century without having to pay for it with high and rising rates of inflation. Don’t ever forget that Reagan was elected and re-elected by blue collar Democrats.

The left-wing’s demonization of Ronald Reagan owes much to the Republican Establishment. The Republican Establishment regarded Reagan as a threat to its hegemony over the party. They saw Jack Kemp the same way. Kemp, a professional football star quarterback, represented an essentially Democratic district. Kemp was aggressive in challenging Republican orthodoxy. Both Reagan and Kemp spoke to ordinary people. As a high official in the Reagan administration, I was battered by the Republican Establishment, which wanted enough Reagan success so as not to jeopardize the party’s “lock on the presidency” but enough failure so as to block the succession to another outsider. Anyone who reads my book,
The Supply-Side Revolution
(Harvard University Press, 1984), will see what the real issues were.

If I had time to research my writings over the past 30 years, I could find examples of partisan articles on behalf of Republicans and against Democrats. However, political partisanship is not the corpus of my writings. I had a 16-year-stint as
Business Week
’s first outside columnist, despite hostility within the magazine and from the editor’s New York social set, because the editor regarded me as the most trenchant critic of the George H.W. Bush administration in the business. The White House felt the same way and lobbied to have me removed from the William E. Simon Chair in Political Economy at the Center for Strategic and International Studies.

Earlier when I resigned from the Reagan administration to accept appointment to the new chair, CSIS was part of Georgetown University. The university’s liberal president, Timothy Healy, objected to having anyone from the Reagan administration in a chair affiliated with Georgetown University. CSIS had to defuse the situation by appointing a distinguished panel of scholars from outside universities, including Harvard, to ratify my appointment.

I can truly say that at one time or the other both sides have tried to shut me down. I have experienced the same from “free thinking” libertarians, who are free thinking only inside their own box.

In Reagan’s time we did not recognize that neoconservatives had a Jacobin frame of mind. Perhaps we were not paying close enough attention. We saw neoconservatives as former left-wingers who had realized that the Soviet Union might be a threat after all. We regarded them as allies against Henry Kissinger’s inclination to reach an unfavorable accommodation with the Soviet Union. Kissinger thought, or was believed to think, that Americans had no stomach for a drawn-out contest and that he needed to strike a deal before the Soviets staked the future on a lack of American resolution.

Reagan was certainly no neoconservative. He went along with some of their schemes, but when neoconservatives went too far, he fired them. George W. Bush promotes them. The left-wing might object that the offending neocons in the Reagan administration were later pardoned, but there was sincere objection to criminalizing what was seen, rightly or wrongly, as stalwartness in standing up to communism.

Neoconservatives were disappointed with Reagan. Reagan’s goal was to
end
the cold war, not to
win
it. He made common purpose with Gorbachev and
ended
the cold war. It is the new Jacobins, the neoconservatives, who have exploited this victory by taking military bases to Russian borders.

I have always objected to injustice. My writings about prosecutorial abuse have put me at odds with “law and order conservatives.” I have written extensively about wrongful convictions, both of the rich and famous and the poor and unknown. My 30-odd columns on the frame-up of 26 innocent people in the Wenatchee, Washington child sex abuse witch hunt played a role in the eventual overturning of the wrongful convictions.

My book, with Lawrence Stratton,
The Tyranny of Good Intentions
, details the erosion of the legal rights that make law a shield of the innocent instead of a weapon in the hands of government. Without the protection of law, rich and poor alike are at the mercy of government.

Americans have forgotten what it takes to remain free. Instead, every ideology, every group is determined to use government to advance its agenda. As the government’s power grows, the people are eclipsed.

We have reached a point where the Bush administration is determined to totally eclipse the people. Bewitched by neoconservatives and lustful for power, the Bush administration and the Republican Party are aligning themselves firmly against the American people. Their first victims, of course, were the true conservatives. Having eliminated internal opposition, the Bush administration is now using blackmail obtained through illegal spying on American citizens to silence the media and the opposition party.

Before flinching at my assertion of blackmail, ask yourself why President Bush refuses to obey the Foreign Intelligence Surveillance Act. The purpose of the FISA court is to ensure that administrations do not spy for partisan political reasons. The warrant requirement is to ensure that a panel of independent federal judges hears a legitimate reason for the spying, thus protecting a president from the temptation to abuse the powers of government. The only reason for the Bush administration to evade the court is that the Bush administration had no legitimate reasons for its spying. This should be obvious even to a naif.

The United States is undergoing a coup against the Constitution, the Bill of Rights, civil liberties, and democracy itself. The “liberal press” has been co-opted. As everyone must know by now, the
New York Times
has totally failed its First Amendment obligations, allowing Judith Miller to make war propaganda for the Bush administration, suppressing for an entire year the news that the Bush administration was illegally spying on American citizens, and denying coverage to Al Gore’s speech that challenged the criminal deeds of the Bush administration.

The TV networks mimic Fox News’ faux patriotism. Anyone who depends on print, TV, or right-wing talk radio media is totally misinformed. The Bush administration has achieved a de facto Ministry of Propaganda.

The years of illegal spying have given the Bush administration power over the media and the opposition. Journalists and Democratic politicians don’t want to have their adulterous affairs broadcast over television or to see their favorite online porn sites revealed in headlines in the local press with their names attached. Only people willing to risk such disclosures can stand up for the country.

Homeland Security and the USA Patriot Act are not our protectors. They undermine our protection by trashing the Constitution and the civil liberties it guarantees. Those with a tyrannical turn of mind have always used fear and hysteria to overcome obstacles to their power and to gain new means of silencing opposition.

Consider the no-fly list. This list has no purpose whatsoever but to harass and disrupt the livelihoods of Bush’s critics. If a known terrorist were to show up at check-in, he would be arrested and taken into custody, not told that he could not fly. What sense does it make to tell someone who is not subject to arrest and who has cleared screening that he or she cannot fly? How is this person any more dangerous than any other passenger?

If Senator Ted Kennedy, a famous senator with two assassinated brothers, can be put on a no-fly list, as he was for several weeks, anyone can be put on the list. The list has no accountability. People on the list cannot even find out why they are on the list. There is no recourse, no procedure for correcting mistakes.

I am certain that there are more Bush critics on the list than there are terrorists. According to reports, the list now comprises 80,000 names! This number must greatly dwarf the total number of terrorists in the world and certainly the number of known terrorists.

How long before members of the opposition party, should there be one, find that they cannot return to Washington for important votes, because they have been placed on the no-fly list? What oversight does Congress or a panel of federal judges exercise over the list to make sure there are valid reasons for placing people on the list?

If the government can have a no-fly list, it can have a no-drive list. The Iraqi resistance has demonstrated the destructive potential of car bombs. If we are to believe the government’s story about the Murrah Federal Office Building in Oklahoma City, Timothy McVeigh showed that a rental truck bomb could destroy a large office building. Indeed, what is to prevent the government from having a list of people who are not allowed to leave their homes? If the Bush administration can continue its policy of picking up people anywhere in the world and detaining them indefinitely without having to show any evidence for their detention, it can do whatever it wishes.

Many readers have told me, some gleefully, that I will be placed on the no-fly list along with all other outspoken critics of the growth in unaccountable executive power and war based on lies and deception. It is just a matter of time. Unchecked, unaccountable power grows more audacious by the day. As one reader recently wrote, “when the president of the United States can openly brag about being a felon, without fear of the consequences, the game is all but over.”

Congress and the media have no fight in them, and neither, apparently, do the American people. Considering the feebleness of the opposition, perhaps the best strategy is for the opposition to shut up, not merely for our own safety but, more importantly, to remove any impediments to Bush administration self-destruction. The sooner the Bush administration realizes its goals of attacking Iran, Syria, and the Shia militias in Lebanon, the more likely the administration will collapse in the maelstrom before it achieves a viable police state. Hamas’ victory in the recent Palestinian elections indicates that Muslim outrage over further U.S. aggression in the Middle East has the potential to produce uprisings in Pakistan, Egypt, Jordan, and Saudi Arabia. Not even Karl Rove and Fox News could spin Bush out of the catastrophe.

Perhaps we should go further and join the neocon chorus, urging on invasions of Iran and Syria and sending in the Marines to disarm Hizbullah in Lebanon. Not even plots of the German High Command could get rid of Hitler, but when Hitler marched German armies into Russia he destroyed himself. If Iraq hasn’t beat the hubris out of what Gordon Prather aptly terms the “neo-crazies,” U.S. military adventures against Iran and Hizbullah will teach humility to the neo-crazies.

Many patriotic readers have written to me expressing their frustration that fact and common sense cannot gain a toehold in a debate guided by hysteria and disinformation. Other readers write that 9/11 shields Bush from accountability.

Debate is dead in America for two reasons: One is that the media concentration permitted in the 1990s has put news and opinion in the hands of a few corporate executives who do not dare risk their broadcasting licenses by getting on the wrong side of government, or their advertising revenues by becoming “controversial.” The media follows a safe line and purveys only politically correct information. The other reason is that Americans today are no longer enthralled by debate. They just want to hear what they want to hear. The right-wing, left-wing, and libertarians alike preach to the faithful. Democracy cannot succeed when there is no debate.

Americans need to understand that many interests are using the “war on terror” to achieve
their
agendas. The Federalist Society is using the “war on terror” to achieve its agenda of concentrating power in the executive and packing the Supreme Court to this effect. The neocons are using the war to achieve their agenda of Israeli hegemony in the Middle East. Police agencies are using the war to remove constraints on their powers and to make themselves less accountable. Republicans are using the war to achieve one-party rule—theirs. The Bush administration is using the war to avoid accountability and evade constraints on executive powers. Arms industries, or what President Eisenhower called the “military-industrial complex,” are using the war to fatten profits. Terrorism experts are using the war to gain visibility. Security firms are using it to gain customers. Readers can add to this list at will. The lack of debate gives carte blanche to these agendas.